S.B. Wad, J.
(1) The petitioner is a reputed firm of the Cost Auditors with the standing of about 40 years. The Company Law Board by its decision dated 18-11-1980 took the following decision imposing restrictions on number of cost audits that can be entrusted to a Cost Auditor/a firm of Cost Auditors:
'THEnumber of Cost audits to be allowed per cost auditor per annum should be restricted to 30 instead of 20 as suggested by the Council. Since cost audit is ordered for a product manufactured by a company, the number of audits should be reckoned with reference to each product for which a report is submitted. Further, if the product is manufactured in more than one unit of a company, the report in respect of each unit will be treated as 'one Cost Audit' for the purpose of reckoning the above limit. The above limit will be made applicable from the calendar year 1-1 1981 and will apply to those units whose year ending falls within the period.'
The said decision of the Company Law Board was published in the publication of the council of the Institute of Costs and Works Accountants of India, namely, the Management Accountant on 3rd March, 1981 for notice of its members, including the petitioner. By its representation dated 23rd June, 1981 to the Company Law Board the petitioner pointed out as to how such a restriction was illegal, arbitrary and unjust and requested the Board to rescind the said decision. On 19th September 1981 the Company Law Board informed M/s. The Chemical Industrial and Pharmaceutical Laboratories, Bombay, a regular client of the petitioner-firm, that the Company should propose the name of a qualified Cost Accountant other than the petitioner firm as the name of the said firm has already been approved by the Board for audit of 30 units. A similar letter was sent by the Board to Anil Starch Products Ltd., another regular client of the petitioner-firm. The said companies informed the Board that the petitioner firm has an established acumen, professional competence and integrity. They also emphasised the aspect of confidentiality between the company and the Cost Auditors. The Companies requested the Board to re-consider their decision but the decisions were not re-considered. Feeling aggrieved the petitioner filed the present petition
(2) The impugned decision is challenged by the petitioner on the following grounds:
(A)That the said decision is ultra virus the provisions of Section 233(B) and Section 637(A) of the Companies Act ; (b) That the impugned decision is arbitrary and capricious ; and (c) That the said decision violates the fundamental rights of the petitioner as guaranteed by Article 19(l)(g) of the Constitution.
(3) The respondents justify the decision as a step for promoting efficiency and dispersal of the cost audit work with a view to prevent monopoly. The respondents submit that were because of the complaints of concentration of work received by the Council. It is then submitted that the statutory body of the cost auditors, namely, the Institute of Costs and Works Accountants of India has recomended the restriction imposed by the impugned decision. They further submit that Section 637A, read with Section 209(1)(d) read with Section 233(B), empowers the Central Government/Company Law Board to impose the restrictions stated in the impugned decision.
(4) In 1959, the Parliament passed the Cost and Works Accountants Act (Act 23 of 1959). The object of the inactment is 'to make provision for the regulation of the profession of Cost and Works Accountants. 'A person who possesses the requisite academic qualifications and training as prescribed by the Institute can register himself as a Cost Accountant with the Institute. Under Section 6 of the Act no member of the Institute shall be entitled to practice, whether in India or elsewhere unless he has obtained from the Council a certificate of practice. Chapter V of the Act provides for the penalties for professional misconduct of the Cost Auditors. Section 2(2) provides that a Member of Institute shall be deemed 'to be in practice' when, individually or in partnership with one or more members of the Institute he practices the profession. Section 26 debars the Companies, whether incorporated in India or elsewhere, from practicing as Cost Accountants.
(5) We may now note the relevant provisions of the Companies Act in this regard:
'209.(1)(d). in the case of a company pertaining to any class of companies engaged in production, processing, manufacturing or mining activities, such particulars relating to utilisation of material or labour or to other items of cost as may be prescribed, if such class of companies is required by the Central Government to include such particulars in the books of account.'
(6) 224. (1). Every company shall, at each annual general meeting, appoint an auditor or auditors to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting and shall, within seven days of the appointment, give intimation thereof to every auditor so appointed.
(IA)Every auditor appointed under sub-section (1) shall within thirty days of the receipt from the company of the intimation of his appointment, inform the Registrar in writting that he has accepted, or refused to accept, the appointment. (1B). On and from the financial year next following the commenecment of the Companies (Amendment) Act, 1974, no company or its Board of directors shall appoint or re-appoint any person or firm as its auditor if such person or firm is, at the date of such appointment or re-appointment, holding appointment as auditor of the specified number of companies or more than the specified number of companies. (1C). For the purposes of enabling a company to comply with the provisions of sub-section (IB), a person or firm holding, immediately before the commencement of the Companies (Amendment) Act, 1974, appointment as the auditor of a number of companies exceeding the specified number, shall, within sixty days from such commencement, intimate his or its unwillingness to be re-appointed as the auditor from the financial year next following such commencement, to the company or companies of which he or it is not willing to be re-appointed as the auditor ; and shall simultaneously intimate to the Registrar the names of the companies of which he or it is willing to be re-appointed as the auditor and forward a copy of the intimation to each of the companies referred to therein.'
'233 B.(1) Where in the opinion of the Central Government it is necessary so to do in relation to any company required under clause (d) of sub-section (1) of section 209 to include in its books of account the particluars referred to therein, the Central Government may, by order, direct that an audit of cost accounts of the company shall be conducted in such manner as may be specified in the order by an auditor (who shall be a cost accountant within the meaning of the Cost and Works Accountants Act, 1959 (23 of 1959): Provided that if the Central Government is of opinion that sufficient number of cost accountants within the meaning of the Cost and Works Accountants Act, 1959, are not available for conducting the audit of the cost accounts of companies generally that Government may, by notification in the Official Gazette, direct that for such period as may be specified in the said notification, such Chartered Accountants within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), as possesses the prescribed qualifications, may also conduct the audit of the cost accounts of companies, and thereupon a Chartered Accountant possessing the prescribed qualifications may be appointed to audit the Cost accounts of the company. (2) The auditor under this section shall by appointed by the Board of directors of the company with the previous approval of the Central Government. (3) An audit conducted by an auditor under this section shall be in addition to an audit conducted by an auditor appointed under section 224. (4) An auditor shall have the same powers and duties in relation to an audit conducted by him under this section as an auditor of a company has under sub-section (1) of section 227 and such auditor shall make his report to the (Central Government) in such form and within such time as may be prescribed and shall also at the same time forward a copy of the report to the company. (5) (a) A person referred to in sub-section (3) or sub-section (4) of section 226 shall not be appointed or re-appointed for conducting the audit of the cost accounts of a company. (b) A person appointed, under section 224, as an auditor of a company, shall not be appointed or re-appointed for conducting the audit of the cost accounts of that company. (c) If a person, appointed for conducting the audit of cost accounts of a company, becomes subject, after his appointment, to any. of the disqualifications specified in clause (a) or clause (b) of this sub-section, he shall, on and from the date on which he becomes so subject cease to conduct the audit of the cost accounts of the company. (6) Upon receipt of an order under sub-section (1), it shall be the duty of the company to give all facilities and assistance to the person appointed for conducting the audit of the cost accounts of the company. (7) The company shall, within thirty days from the date of receipt of a copy of the report referred to in sub-section (4) furnish the Central Government with full information and Explanationns on every reservation or qualification contained in such report. (8) If, after considering the report referred to in sub-section (4) and the information and Explanationns furnished by the company under sub-section (7), the Central Government is of opinion that any further information or Explanationn is necessary, that Government may call for such further information and Explanationn and there-upon the company shall furnish the same within such time as may be specified by that Government. (9) On receipt of the report referred to in sub-section (4) and the informations and Explanationns furnished by the company under sub-section (7) and sub-section (8) the Central Government may take such action on the report, in accordance with the provisions of this Act or any other law for the time being in force, as it may consider necessary. (10) The Central Government may direct the company whose cost accounts have been audited under this section to circulate to its members, along with the notice of the annual general meeting to be held for the first time after the submission of such report, the whole or such portion of the said report as it may specify in this behalf. (11) If default is made in complying with the provisions of this section, the company shall be liable to be punished with fine which may extend to five thousand rupees, and every officer of the company who is in default, shall be liable to be punished with imprisonment for a term which may extend to three years, or with fine which may extend to five thousand rupees or with both'. '637 A (1). Where the (Central Government or Company Law Board) is required or authorised by any provision of this Act -- (a) to accord approval, sanction, consent, confirmation or recognition to or in relation to, any matter ; (b) to give any direction in relation to any matter ; or (c) to grant any exemption in relation to any matter, then, in the absence of anything to the contrary contained in such or any other provision of this Act, the (Central Government or Company Law Board) may accord, give or grant such approval, sanction, consent, confirmation, recognition, direction or exemption subject to such conditions limitations or restrictions as it may think fit to impose and may, in the case of contravention of any such condition, limitation or restriction, rescind or withdraw such approval, sanction, consent, confirmation, recognition, direction or exemption.'
'637AA. Notwithstanding anything contained in section 198, section 309 or section 637A, the Central Government may, while according its approval under section 269, to any appointment or to any remuneration under section 309, section 310, section 311 or section 387, fix the remuneration of the persons so appointed or the remuneration, as the case may be, within the limits specified in this Act, at such amount or percentage of profits of the company, as it may deem fit and while fixing the remuneration, the Central Government shall have regard to- (a) the financial position of the company ; (b) the remuneration or commission drawn by the individual concerned in any other capacity, including his capacity as a sole selling agent; (c) the remuneration or commission drawn by him from any other company; (d) professional qualifications and experience of the individual concerned ; (e) public policy relating to the removal of disparities in income'.
By the Companies Amendment Act, 1965, Section 209(i)(d) and Section 233(B) were added to the Companies Act. The Central Government can now direct a class of companies engaged in production, manufacturing etc. to keep accounts relating to utilisation of material or labour or other items of costs as may be prescribed. Central Government can direct cost audit of the companies for which the accounts are required to be maintained as stated above. By Companies (Amendment) Act, 1974 a new proviso was added to Section 224(1). Susections 1B and 1C were also added. The object of the amendments was to limit the number of audits for each auditor or firm of auditors. It is an admitted fact that the prescribed limits of audits is twenty. Simultaneously a proviso was added to Section 233(B) regarding the cost audit permitting the Chartered Accountants to carry out cost audits also. The Central Government could permit the Chartered Accountants to undertake the cast audit if it forms the opinion that sufficient number of Cost Accountants were not available.
(7) Relying on these provisions the petitioner argues that there is no provision in Section 233(B) similar to Section 224(1B) to impose any restriction on the number of Cost audits which can be undertaken by a Cost Auditor. Since there is no provision in the enactment, the impugned decision is ultra virus of Section 233(B). The Central Government on the other hand claims that they can impose such restrictions by virtue of a general power vested in the Central Government or Company Law Board under Section 637(A) of the Act. The reply of the petitioner is that the general power of Section 637(A) cannot be invoked by the Central Government unless the principal and substantive provision of the Act allegedly requiring an action under Section 637(A) expressly permits any such limitation. On closer scrutiny of the relevant sections the petitioner's submission has to be upheld.
(8) Power to impose restrictions, limitations or conditions under Section 637(A) was available for the Central Government in respect of Chartered Accountants all the times. A question can legitimately be posed as to why in 1974 the Parliament found it necessary to expressly amend Section 224 so as to permit the Central Government to impose restrictions on number of audits. Section 233(B) relating the cost audits was also amended in 1974. Why was it that the Parliament did not find it necessary to amend the said provision permitting Central Government to impose restrictions on number of cost audits. It is clear that the Parliament thought that unless an express power is conferred by statute Central Government has no such power. In its own wisdom the Parliament also thought that no such restriction was necessary for cost accounting and for that reason no power need be conferred on the Central Government to impose restriction on number of cost audits. Further, there is intrinsic evidence of the intention of the Parliament not to impose any such restriction on the number of cost audits. Proviso to Section 233(B) simultaneously introduced in 1974 makes this position clear. What the Parliament found was that the problem of the profession of Cost Accountants was not of surplus but was one of shortage, unlike the profession of Chartered Accountants. Because of this special problem concerning the profession of Cost Auditors the Central Government was empowered to permit the Chartered Accountants to conduct the cost audits (provided they hold required qualifications). The power conferred on the Central Government in regard to Chartered Accountants and the Cost Accountants, by the said provisions of Companies Act, are of diametrically opposite connotation. It is further clear that for imposing any restriction on the quantum of the professional activity there must be a Legislative sanction. The Executive connot operate of its own and trade on the field of the Legislature. Respondents have tried to justify the impugned order relying on sub-sections 1(B) and 1(C) of Section 224. Bit the argument ignores the express language of the two sections, the Legislative intent and the social realities of the two professions.
(9) Does section 637(A) improve the position of the respondents I think not. Section 637 cannot be pressed in service unless the provisions of the Companies Act requiring or authorising the Central Government or the Company Law Board to accord the approval, sanction etc. In other words, such approval, sanction etc. is a precondition to the exercise of power under section 637(A). Power to impose condition, limitation or restriction cannot be understood without analysing the provisions of the Act requiring approval, sanction etc., the scheme of the x said provision in the Act and the object of such provision. A reference to the principal and substantive provisions of the Act requiring approval and sanction is also necessary because there might be something 'contrary' to the idea of condition, limitation and restriction in the language of the Section or other provisions of the Act. In this sense provisions of Section 637A are neither autonomous nor omnipotent. As stated above the key to understand section 233(B) is in its proviso. The proviso distinctly states an intention contrary to that of limitations and restrictions on the quantum of audit. If the profession of Cost Auditors was over crowded there would not have been any necessity of permitting Chartered Accountants also to conduct cost audits. The Legislature was aware that sufficient number of Cost Accountants was not available. In other words. all the available Cost Auditors had enough work. In fact the assumption is that the work is more than what the available number of Cost Accountants would be able to do. The proviso to section 233(b) introduced in 1974 by the same amendment by which restriction on number of audits was introduced in section 224 unambiguously expresses the intention of the Legislature contrary to the idea of any restriction or limitation. Section 637A will have, thereforee, no application and cannot be utilised by the Central Government or by the Company Law Board to take the power which is not conferred upon them by the Companies Act. The impugned decision is wholly ultra virus of the provisions of the Companies Act. Since the restriction of audits to 30 audits is not lawful, the basis and mode of calculation of 30 audits, namely, 'each product' of the Company and 'each unit' of the Company where product is manufactured in more than one unit, is also illegal.
(10) The respondents, however, submit that the decision of the Supreme Court in The Company Law Board v. The Upper Doab Sugar Mills Ltd. etc. : [1977]2SCR503 supports the restrictions of thirty audits imposed by the impugned order. In that case the respondent-company had sought approval of the Company Law Board under Section 269 of the Act for appointment of two Managing Directors after the coming into force of the Xxxx Companies Act, 1956. The Company Law Board gave the approval subject to a condition that total remuneration of each Managing Director by way of commission and salary shall not exceed Rs. 1,20,000 per annum. This restriction on the quantum of commission and salary was challenged by the Company. It was argued before the Supreme Court that Section 198 and sub-section 3 of section 309 are special provisions regarding the remuneration of the Directors and, thereforee. Section 269 and Section 637(A) cannot be invoked to justify the said restriction. On analysis of Section 198 and Sub-section 3 of Section 309 the Supreme Court came to the conclusion that the said sections deal with an entirely different situation of the Managing Directors having been appointed earlier to the Act and continuing after the coming into force of the Companies Act, 1956. The said two Directors were appointed for the first time after the said Act came into force. The Supreme Court set aside the decision of this Court which was in favor of the respondent-company and dismissed the appeal of the respondent. It may be seen that there is no analysis of the contents and amplitude of the powers under Section 637(A). This may be because no such argument was advanced before the Supreme Court, The challenge, it appears, was a limited challenge. Section 269, according to the respondent in that case, does not speak of the remuneration of the Managing Directors. thereforee, while giving approval under section 269 of the Company Law Board could not restrict the remuneration since it was beyond the intendment of Section 269. The two other sections were referred to by the Company in order to demonstrate, by contrast, the said intendment. I do not think that the said decision of the Supreme Court helps the Central Government or the Company Law Board. If we closely examine the approach of the Supreme Court it is apparent that the Supreme Court had looked to the nature of restriction, the situation in which it is detailed in the section and the object of the provisions in question. There are numerous sections in the Companies Act where approval, sanction or directions can be given by the Central Government or the Company Law Board. Right from the birth of the Company and its name to its dissolution innumberable aspects of constitution, functions and working of Company are regulated through the powers of approval, sanction, directions etc. Each case, thereforee, calls for separate consideration. The decision of the Supreme Court, to my mind, would not salvage the respondents in the imposition of restriction on the number of cost audits.
(11) The petition has also challenged the impugned order as being vocative of the right to carry on profession guaranteed by Article 19(l)(g) of the Constitution. It is admitted by the counsel of the Institute of Costs and Works Accountants of India that at persent most of the work of Cost Accountants pertains to the cost audits ordered by the Central Government under section 233(B) of the Act. The utility of scientific cost auditing for optimum efficiency and future development is not much appreciated by the private enterprises in India or by public sector undertakings. In the industrially advanced countries cost auditing has become a regular feature of industrial planning. The restriction imposed, thereforee, materially and-substantially affects the right to carry on the profession of cost audit. Cost audit, it is submitted, not being an annual feature like the financial audit, depends largely on the chance of the Central Government directing such audit and the profession is required to be carried out on an un economical and limited basis. It is argued that the impugned restriction will entail substantial reduction of the specialised staff and young trainees working with the petitioner and would thus affect not only the petitioner but a large number of associate workers. These averments are made in para 26(h) of the petition. There is hardly any reply in the counter-affidavit except stating that the petition should not increase his staff beyond that which is required by limited number of audits. There is no substantive reply to the allegations of violation of fundamental right under Article 19(1)(g) of the constitution.
(12) The Cost and Works Accountants Act was passed in 1959 with an object to make provision for regulation of the profession of costs and works accountants. Broadly speaking, the Act lays down the qualifications required for Cost Accountants to practice his profession and to enforce the discipline of professional ethics. Where a profession is so regulated by Parliamentary Legislation a moot question arises. Is the right to practice created by the statute or is it merely regulated by the Statute. If the right is entirely a creation of the Statute, it can be argued that it is not a fundamental right. If it is created by a statute then the challenge is limited challenge. It must be demonstrated that.the provisions of the statute is un-constitutional. But if the unconstitutionality cannot be established the only challenge open to the petitioner is to show that an administrative restriction is ultra virus of the statute. If, however, statute merely regulates a profession but does not create the right to practice the profession, the petitioner can challenge the given restriction both on the grounds of virus of the statute and as an unreasonable restriction on the fundamental right. This question is of great significance to all the professions, such as that of advocate, medical practitioner, architect etc. Most of these professions are now regulated by statutory regulations Article l9(l)(g) ofthe Constitution guarantees to every citizen a right to practice any profession or to carry on any occupation, trade or business. Article 19(6) empowers the State to make a law prescribing professional or technical qualifications necessary for practicing any profession or to carry on any occupation, trade or business. In other words, if a law passed by the Parliament imposes restrictions relating to professional and technical qualifications for practicing a profession that will be a reasonable restriction permitted by the Constitution. Most of the enactments regulating professions passed after adoption of the Constitution, prescribed the professional and technical qualification for practicing these professions. The Parliament has kept in mind the ambit of the power of the State mentioned in Article 19(6) to impose restrictions in the nature of professional and technical qualifications. The restriction imposed on a profession can be reasonable and hence constitutional in two conditions are satisfied (1) the restriction must be imposed by law and (2) the restriction should be only in the nature of professional or technical qualifications. If the restrictions imposed are not imposed by law or if they are of the nature different from the professional or technical qualifications the restrictions would be unreasonable and unconstitutional.
(13) The preamble and the statement of objects and reasons expressly state that this enactment is made for 'regulating' the profession. In fact, the petitioner had started his profession in 1948, eleven years before the Act was passed. The restriction of 30 audits imposed by the impugned decision is not imposed by the Costs and Works Accountants Act, 1959 or the regulations framed under the said Act. They are purported to be imposed by virtue of powers under Section 233(B) of the Companies Act. The restriction imposed is for the purposes of the Companies Act. Can it be said that the impugned restriction does not directly violate any fundamental right but only incidentally and remotely impinges upon it No, the effect is direct and proximate in view of the admission of the Council itself. In its affidavit dated 26-12-1981 the Counc'.l has stated 'The main business of these practicing Cost Accountants today is to carry out cost audit under Section 233B of the Companies Act, as there is very little scope of practice outside this field. 'It is, thereforee, vulnerable to challenge of violation of fundamental right. The fact that sufficient number of Chartered Accountants are not available in the profession, noted by the Legislature i i Section 233V has direct relevance. The freedom to practice profession can be curtailed by law and not by an Executive decision of the Company Law Board. In recognition of this principle sub-section 1B was added to section 224 in regard to Chartered Accountants by amending Act of 1974. Since the restriction is imposed in the present case by mere Executive Order, the restriction is unconstitutional. The limitation on the quantum of work, namely, 30 audits cannot by any stretch of imagination be described as a professional or technical qualification envisaged by Article 19(6)(1). The technical and professional qulifications for registration as a Cost Auditor are laid down by Regulation 29 of the Costs and Works Accountants Regulations 1959 framed by virtue of powers given to the Council under the Act. Details of syllabi for the examinations and practical training are also laid down by the said Regulations, The Regulations do not put any restriction on the quantum of work that can be undertaken by a cost auditor. The impugned decision is unconstitutional on this ground also. The said decision violates the fundamental right of the petitioner guaranteed by Article 19(1)(g).
(14) The impugned decision is further faulted by the petitioner on the ground of arbitrariness and breach of Article 14 of the Constitution. The justification of the respondents in taking the present decision is that the work of Cost Accountants is monopolised in hands of few persons and the dispersal of the work is in the interest of the profession. The approval by the statutory council is also relied upon to show that there is no arbitrariness in the decision. The respondents claim that the said restriction is necessary in order to get the cost audits done within the time prescribed by the Act and for securing efficiency of performance. It is submitted by the respondent that there are about 500 auditors and the Government orders about 1200 to 1600 audits every year: By a simple arithmetical calculation a Cost Auditor does not get more than two or three audits every year. Annexure R-5 filed by the respondents (with the counter-affidavit) gives a summary of the Audits conducted in 1981. It is as under :
A. Unit Range No. of Cost Auditors. Below 5 123 6-10 12 11-20 6 20 and above 2 Total: 143 B. Remuneration Range No. of Cost Auditors Below 25000 120 25001-50000 13 50000-1 lakh 7 Above 1 lakh 3 Total: 143
The summary demonstrates, according to the respondents the uneven dispersal of work of cost audits. 'The cost auditors have done more than twenty audits in the year and the income of three Cost auditors is over a lac of rupees each but 123 auditors have done less than five audits in a year and their income is below Rs. 25,000/-.
(15) The petitioners have repelled this justification through number of submissions. It is argeed that the considerations of the so-called monopoly and dispersal work are alien to the basic concept of a profession. Unlike business, the profession is Characterised by personal competence and relationship of confidence between the client and the professional practitioner. It is also emphasised that under the Act it is a company which appoints a Cost Auditor. Cost Accountants work is not limited merely, to the Components of costs, namely, labour raw material etc. The process of manufacture and special techniques of manufacture must be understood by the Cost Auditor before he presents the cost picture to a company. Process of manufacture and special techniques applied by the manufacture are highly secret information Different industries have different fields of specialisation and a cost auditor is preferred for his specialised knowledge by a company. Monopolies in trade and business, on the other hand, are established by control of capital and money power. It is not so in a profession. A Cost Accountant is preferred for his professional competence, for his specialisation and above all for his integrity and the trust that a company can put in the auditor in matters of processes and techniques of manufacture. The petitioner then submits that the paucity of work is felt by some auditors because of the fact that Government does not order sufficient number of audits. There is ample scope for all the auditors and huge number of units can be audited. The Government does not take necessary steps to do anything in this regard. There are presently 1600 factories (units) liable to cost audit but the Government ordered cost audits in about 470 units only in 1981. It is the failure on the part of the Government that has resulted in the alleged scramble for work. The figure provided by the Government would show that out of about 500 Auditors only about 143 Auditors are to some extent actively practicing. Even out of 143, majority of Auditors are in service drawing salaries and some of them are retired employees who do auditing merely as an additional income. It is the Government which is responsible for restricting the growth of the profession of Cost Accountants. Annexure 'D' is a letter written by Chemical Industries and Pharmaceutical Laboratories Ltd. to the Company Law Board. This was a company to which the Board had informed that they should engage another Cost Auditor as the petitioner had done more than 30 audits. In reply the Company had informed that the work was entrusted to the petitioner as the profession involves an element of confidentiality, trade secrecy, integrity and professional ethics and familiarity with the intricacious of bulk drug manufacturing. They had also informed that the petitioner had performed his duties with the statutory time and with efficiency. Similar is a letter (Annexure 'E') from the Anil Starch Products Ltd. The said company had also emphasised that the change of auditor from year to year would seriously jeopardise the industry. The petitioner then submits that he and Mr. Nalin Mehta, a petitioner in the connected petition, together have only 7% of the total cost audit work of the entire country and the petitioners share is only 4%. They do not enjoy position of dominance. It is then submitted that there are statutory provisions for completing audit within specific period with penal sanctions and, thereforee, the alleged ground of securing timely audits in support of the Government's claim is without any basis. It is then submitted that the Government has not produced any material or data to show that the petitioners in the two petitions or any other Auditor, having large work, has delayed the submission of the report or done that audit work inefficiently.
(16) There is a good deal of substance in the submissions of the petitioner. There is absolutely no data produced by the Government to show that the large work undertaken by petitioner and some others like him has in fact resulted into delayed reports beyond the statutory period or that a penal action was taken against any one of them, under the statutory provisions. So also no material is produced by the respondents to show that the large work handled by these auditors has resulted into inefficiency. The justification for the impugned decision is thus conjectural and imaginary. In fact, Annexures 'D' and 'E' referred to above show that the petitioner had performed the audit work not only within the statutory period but with high efficiency and acumen. Having 4% of the total work by the petitioner and 3% of the total work in the connected petition cannot be reasonably defined as establishing a monopoly. From the figures produced by the Government itself there are only 143 cost auditors who can be said to be somewhat actively practicing the profession. So also instead of 1600 audits that can be ordered, the Government has ordered only about 470 audits. This is just over 25% of the audits that can be ordered even according to the Government information. On the other hand, the Government has claimed that there are 500 Auditors and 1600 audits can be conductor resulting into only two to three audits per auditor. The basis for the Government decision is thus highly imaginary and is not supported by any factual or rational data. It was admitted by the Government that in the developed industrial countries cost audit has acquired a regular status and as a routine necessity. Our public sector undertakings and the private industries have yet not appreciated the importance of cost audits, which is in their own interest. This is similar to the total neglect of research by our industries. In this state of affairs there is a limited scope for large scale increase of the cost audit work and that too within the cost audits ordered by the Government under Section 233(b). In the present state of this profession the endeavor of the Government should be to foster further growth and awareness of its utility in optimum industrial development of this court. The uncontroverter figures for the year 1981 would show that activity of the Government in this area is in the reverse direction. The economists would call this harmful, to the industrial growth of this nation. Even by the Government calculations an Auditor will get about two three audits in a year. This would not even be sufficient for making his living. The restriction of audits to 30 audits would in no way contribute to dispersal of the cost audit work. Even if 1600 audits are ordered on the basis of 30 audits per auditor the work would be concentrate in the hands of 55 Auditors as against the alleged number of 500. But if 1981 figures of 470 audits is taken into account on the basis of 30 audits per auditor, only 16 auditors would be able to monopolise the entire work. The impugned decision will thus defeat the very object of the said decision, as claimed by the Government. The decision thus suffers from lack of application of mind to the real problem faced by the profession of Cost Auditors. In Mahindra and Mahindra Limited & Others .Union of India, I.L.R. 1980 (2) Delhi Page 1232 the Division Bench of this Court (consisting of Parkash Narain, A.C.J. & Sultan Singh, J.) was called upon to decide legality of restriction imposed by Central Government on the salaries and commission of three whole time Executive Directors of the petitioner-company in that case. The scope of powers under Section 637(A) and Section 637(AA) came up for the consideration of the Government. So also the validity of the Government policy was called in question by the petitioner. The Division Bench through several example came to the conclusion that that the Government policy can be distinct from the public policy. What is good from the point of view of the Government may not be good from the point of view of the general public The Division Bench observed : 'Therefore, we are of the view that when the respondent has categorically said that it was the Government policy which resulted in the issuance of the impugned guidelines, that cannot be taken to mean that it was public policy. Indeed, public policy in a democratic set up is generally expressed though the will of Parliament or other legislatures. That is how it should be keeping in view the provisions of Article 37 of the Constitution. 'The D.B. further 332 held that howsoever laudable the subject may be it has to be effectuated by the State by making laws and not by executive action. With respect I agree and rely on the said observation of Division Bench in the decision of this case because while framing the policy the Government has not considered the necessity of the growth of the profession of Cost Auditors for the accelerated industrial growth of this country. These are the public interests at stake, Moreover, the Government policy is tried to be imposed by Executive action and not through Parliamentary legislation. It may be pertinant to note that after the decision of this Court in Upper Doab Sugar Mills Ltd. v. Company Law Board, 1971 (41) Com Cas 643 where this court held that Section 637A does not permit imposition of a ceiling of remuneration and commission of a Managing Director so as to ensure minimisation of economic inequalities, a new section, namely Section 637AA was introduced in the Companies Act by the amending Act of 1974. The said section provides for the guidelines to government in giving approvals under section 269 of the Companies Act. Guideline 'e' reads, 'the Central Government shall have regard to public policy relating to the removal of disparities in income.' This is a clear indication of the intention of the Parliament that such policy considerations should be supported by its legislation and should not be left to Government policy expressed in the form of an Executive order or decision. For the reasons stated above the impugned decision is arbitrary and vocative of Article 14 of the Constitution. In Ajay Hasia etc. v. Khalid Mujib Sehravar Sebravandi and Others etc. : (1981)ILLJ103SC , the Constitution Bench of the Supreme Court after reviewing some of the earlier decisions has held : 'It must thereforee not be taken to be well settled that what Article 14 strikes at is arbitrariness because an action that is arbitrary, necessarily involve negation of equality .... Wherever thereforee there is arbitrariness in State action ...Article 14 immediately springs into action and strikes down such State action. In act, the concept of reasonableness and non-arbitrariness pervades the entire constitutional scheme and is a golden thread which runs through the shole of the fabric of the constitution,' (at page 495).
(17) The other restrictions enjoined by the impugned order are also arbitrary to law. The impugned order restricts cost audits to thirty per cost contary auditor. The petitioner is a firm, although a sole proprietory firm. As stated earlier the Board informed two of the petitioners clients, namely, M/s. Chemical Industrial and Pharmaceuticals Laboratories, Bombay and Anil Starch Products Ltd. that the petitioner firm has completed thirty audits and, thereforee, the companies should choose another auditor. Thus, although the impugned order restricts audits on the basis of an individual cost auditor, the Board has imposed the said limitation o:i the firm. The petitioner submits that Section 2(2) permits the profession to be practiced as a pertnership firm. So also Regulations 112 and 113 recognise the right of a firm to practice as a Cost Auditor. The petitioner then submits that on the one hand the Board is imposing a limitation of thirty audits per auditor and on the other hand it has not accorded its approval to the petitioners application of taking additional partner in the firm and its reconstitution, for the last more than seven months. Constitution or re-constitution of a firm requires approval of the Central Government under Regulation 113 but the approval. cannot be refused unless the Government forms the opinion that it will amount to professional mis-conduct or the partnership terms are not fair and reasonable or that it would not be in the interest of general public. It is claimed that the entire approach of the Government is arbitrary. The respondents, however, contend that each of the partners in a partnership firm is permitted to do thirty audits but the work shall be assigned to any auditor as an individual and no work would be assigned to the firm as such. Considering the provisions of Section 2(2) and Regulations 112 & 113 there is no doubt that a firm of Auditors as an entity has a right to practice. This is a satutory right. Apart from the fact that the right cannot be taken away by an executive decision no rational justification is shown by the respondents lo justify limitation on a firm, A partnership firm is a compendious name of the partners working together. Other professions such as Solicitors, Architects etc. have such firms. The Act expressly prohibits an incorporated company from practicing as a Chartered Accountant. That is to some extent understandable because the profession depends on the presonal efficiency, competence and integrity which may not be possible in case of a company. So also questions of professional misconduct or violation of statutory requirements cannot be appropriately dealt with against a large number of persons involved in a company. But that is not so in case of partnership firm. The respondents have not explained as to why the petitioner's application for re-constitution of the firm has been delayed for such an inordinate time. Rejecting approval on the grounds stated in Regulation 113 is under-standable but merely to sit on a file for seven months is wholly capricious.
(18) The measure for calculation of thirty audits adopted by the impugned order is each 'product' that is manufactured by a Company and where the product is manufactured in more than one units each such 'unit' would decide the requisite number. Fixing thirty audits on the basis of products or on the basis of units has no rational connection to the object of section 203(1)(d) or to Section 233B. It is also far removed from the realities of cost audit practice. The only object of the Government decision appears to be to reduce the number of auditor as much as possible. Section 209(1)(d) and Section 233B enjoin cost audit of a company. The units of the company may not have a different corporate identity. The cost audit cannot thereforee, be ordered of such a unit. In case of product the audit can be only of a company which manufactures the product. Let us take an illustration of a product like cement manufactured by A.C.C. The A.C.C. as a company has number of factories all over India. The position of raw material, labour, managerial expenses, cost of transport, taxation would be different in different parts of India in which the factories are located. The A.C.C. as a company would be employing its own Special techniques and process in different units. There would be some centralised functions, such as marketing, accounting, administration, by way of cebralised functions. Although, thereforee, as a physical fact Cost Audit has to be undertaken in relation to a product or a unit to start with it is very difficult to separate the same from the overall centralised costing of a company. An Auditor who is familiar with the costing system of a Company like A.C.C. would be able to undertake costing of all its units more quickly, more efficiently and to full confidence regarding integrity, If defferent auditors are to undertaken audits of different units of one company it would be very difficult to achieve the said results. But whatever may be the justification of the Government for ordering separate audits for different units for separate products, no rational justification has been shown as to why the number of audits should be restricted on the basis of units or products. I, thereforee, hold that the above restrictions in the impugned order have no rational nexus and are arbitrary.
(19) For the reasons stated above, the impugned order is arbitrary and violates Article 14 of the Constitution.
(20) The impugned decision of the Company Law Board dated 18-11-80 and the letters of the Company Law Board directing M/s. Chemical Industrial and Pharmaceuticals Laboratories, Bombay and Anil Startch Products Ltd. dated 19-9-1981 are quashed and set aside. The respondents are further directed to dispose of the petitioners application for the re-constitution of the firm within one month today. The writ petition succeeds with costs. The Rule is made absolute.